Worcester buys troubled building

Wednesday

Feb 20, 2013 at 6:00 AMFeb 20, 2013 at 4:43 PM

The city has purchased the four-story apartment building at 5 May St. that has been at the heart of a controversial Main South affordable housing project. The $200,000 purchase was made at an on-site public auction that drew about two-dozen people, including interested developers, neighborhood activists, residents and representatives from community development corporations.

By Bronislaus B. Kush TELEGRAM & GAZETTE STAFF

The city Tuesday purchased the four-story apartment building at 5 May St. that has been at the heart of a controversial Main South affordable housing project.

The $200,000 purchase was made at an on-site public auction late Tuesday morning that drew about two-dozen people, including interested developers, neighborhood activists, residents and representatives from community development corporations.

City officials decided to buy the property after the auctioneer, Frank Trapasso of Francis J. Trapasso & Associates, unsuccessfully tried to woo further interest after a high bid of $135,000 was made by Russell Haims, a property owner and developer who has been tied into many other neighborhood projects.

The building is assessed at $764,000.

City officials last month initiated foreclosure proceedings on the property after 5 May St. LLC, the original developer, failed to complete the project on time, in violation of the city's more than $2.3 million funding contract with the developer.

Officials were hoping that a private developer would have bought the property at the auction so they could use some of the proceeds from the sale to repay the federal Department of Housing and Urban Development and the Massachusetts Department of Housing and Community Development for some “ineligible expenditures” by 5 May St. LLC that were associated with the retrofitting of the apartment complex.

Officials haven't specifically spelled out what those expenditures were.

In all, city officials had earmarked about $2.39 million in state and federal funding for the project, which involved retro-fitting the 15,000-square-foot building into 13 units of affordable housing.

In an agreement, the developer promised the project would be finished last year.

Mr. Trapasso opened the auction with a suggested minimum bid of $300,000.

However, there were no takers and the bidding didn't start until it was suggested that the process start at a $50,000 minimum bid.

Interest on the bidding halted at $135,000.

“I was happy with my bid and I wasn't going to go further because there are issues with this building,” said Mr. Haims of Haims Investment Group. “First of all, there's no parking. Then you have to deal with the building's history and its location in a tough neighborhood.”

Mr. Trapasso noted that, in addition to the city and Mr. Haimes, there were two other registered bidders.

Timothy J. McGourthy, the city's chief financial officer, who attended the proceedings with Thomas F. Zidelis, Worcester's chief financial officer, said officials will decide whether to put the building on the auction block again or put out a request-for-proposals.

He said an updated report on the project will be made available to city councilors at next Tuesday's meeting.

According to Mr. McGourthy, the project is about 40 percent finished. Plumbing and work on the furnaces and other equipment still needs to be done.

He said the city could theoretically complete the project on its own but that plan wasn't practical.

“We're not in the construction business,” Mr. McGourthy said.

Some of the auction's observers who are knowledgeable about the restoration of older buildings privately said that the high bid of $135,000 would have been a bargain and they expressed no surprise that the city decided to buy the property itself.

The city holds a mortgage for the building and its accompanying 6,100 square foot parcel.

Five May St. LLC, which lists its headquarters in Holliston, had also entered into a $600,000 mortgage agreement with Levin Development LLC of Boston, its parent company. Officials said they believe 5 May St. LLC used that loan to purchase the building in 2010 and to conduct feasibility studies.

However, documents show that a “quit claim deed” was subsequently filed on that mortgage. A quit claim is a legal instrument by which the owner of a piece of property, the “grantor” of a mortgage, transfers financial interest to the mortgage recipient.

Many city councilors had complained that too much public money had been pumped into the project. Later reviews by the city administration showed that the funding was paid to the developer without sufficient verification to meet state and federal standards for eligibility.

State and federal officials then sought to recoup some of the funding.

Five May St. LLC purchased the building in 2010 for $435,000.

Under the terms of the auction, the successful bidder was required to pay $25,000 in cash, certified check, bank treasurer's check or cashiers check with the balance to be paid off within 30 days.